ArcelorMittal's third-quarter profit rises 29%

Steel giant announces unprecedented production cuts

By

AudeLagorce

LONDON (MarketWatch) - Shares of ArcelorMittal fell as much as 19% Wednesday after the world's largest steelmaker said it would drastically slash production in the fourth quarter and reported a smaller-than-expected 29% increase in third-quarter profit.

Net profit for the three months to Sept. 30 climbed to $3.8 billion, or $2.79 a share, from $2.96 billion, or $2.10 a share, earned in the year-earlier quarter. Consensus forecasts were for earnings of $4.01 a share, according to Deutsche Bank.

Earnings before interest, taxes, depreciation and amortization (Ebitda) came in at $8.6 billion, in line with the company's guidance, but a disappointment to many analysts.

Sales rose 38% to $35.2 billion. Total shipments, however, fell to 25.6 metric tons from 26 metric tons in the year-ago period.

ArcelorMittal (MTP)
MT, -0.80%
said it would cut production globally by 30% in the fourth quarter, or twice the rate it previously forecast, as prices decline amid slumping economic growth. The cuts imply a utilization rate of just 65%.

ArcelorMittal also warned it expects to post an operating profit of $2.5 billion to $3 billion in the fourth quarter. It had previously set a target of at least $4.5 billion, when it said operating profit in the second half would top that of the first half.

"Very poor results given the profit warning issued by the company for the fourth quarter," said analysts for Ahorro Corporacion Financiera.

ArcelorMittal shares were last down 15.7% in Paris early afternoon trading.

Shares of miners and steelmakers around the world have been under enormous pressure in the past two months as investors fret the global economic slowdown will hit demand for raw materials and prices will collapse. Steelmakers are currently trying to determine how far to cut output before prices fall below the break-even cost of making steel.

More cost cuts

Despite the darkening outlook, the group said it's still on track to report Ebitda between $24.2 billion and $24.7 billion this year compared with $19.4 billion in 2007.

It also lifted its cost-cutting target to $5 billion from $4 billion over the next five years and said it intends to cut net debt by $10 billion by the end of next year.

It will, however, maintain its base dividend at $1.50 a share in 2009.

"The current period of de-stocking requires that we make appropriate production cuts to seek to rebalance supply and demand, and we are also accelerating efforts to pay down debt," Chief Executive Lakshmi Mittal said in a statement.

Analysts drew pessimistic conclusions for the results and the steps announced.

"Market conditions are deteriorating, with lower demand in the carbon steel segment due to de-stocking and an ongoing bleak outlook for the stainless steel segment," UniCredit analysts said.

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In Europe, Fiat SpA (F), Renault, PSA Peugeot Citroen (012150) and BMW (519000) have all cut their outlook for the year.

Confidence in recovery for emerging markets

CEO Mittal said in a conference call with journalists that he still believes in the emerging-market story, despite the current slowdown, and expects the situation to improve by the second quarter of 2009.

He admitted, however, that the company's expansion plans in India are running into some delays and that their size would be reviewed once the necessary approvals have been obtained.

In Europe, investment projects are also being postponed, although the head of that division said no decision has been made on closing particular plants.

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